Through ACOs, healthcare providers aim to avoid unnecessary services, keep patients out of the hospital, prevent medical errors, and improve outcomes.

January 13, 2020

Accountable care organizations (ACOs), a byproduct of the Affordable Care Act (ACA), were designed and deployed to better coordinate and manage the delivery of care and reduce healthcare costs to the system. Theoretically ACOs are “built” to manage patients on the care continuum to ensure that care is coordinated to deliver quality outcomes and better, lower-cost care. The care continuum would include, but is not limited to, multiple different players in healthcare, such as family practice/internal medicine clinicians, cardiologists, orthopods, hospitals, and skilled nursing facilities (SNFs). 

ACOs are groups of doctors, hospitals, and other healthcare providers – though not necessarily in the same practice or health system (e.g., doctors employed by hospitals or different doctors from different private practices) – who decide to work together to coordinate care to achieve high-quality (e.g., improved care/outcomes) results for Medicare patients. Care coordination helps ensure that patients, especially those who are chronically ill, receive appropriate care at the right time. Through ACOs, healthcare providers aim to avoid unnecessary duplication of services, keep patients out of the hospital, prevent medical errors, and improve outcomes. ACOs also ideally foster better communication among their participating clinicians. Originally operating on the public side of healthcare (Medicare/Medicaid),  ACOs have now moved to the commercial side, such as private insurance providers.

ACOs differ from the still-prevalent fee-for-service model of care (though fee-for-service can be a component), in which doctors see patients and bill for those services and visits. Under this traditional model, doctors generate revenue based on the number of patients multiplied by the revenue per visit.

Figure 1

Better Care Delivery and Reduced Costs F1

For example, in Figure 1, you see that Dr. X had 10 patient visits and performed 200 diagnostic tests generating revenues of $11,000. Dr. X receives $100 from Medicare for each office visit he performs. So, it’s in Dr. X’s best interest to run an efficient practice so that he can maximize his revenue by efficiently optimizing the number of visits. This volume proposition, generally, is antithetical to ACOs. (Also, Dr. X’s volumes do not necessarily mean that Dr. X offers lower-quality care, mind you.) In other words, the more patients Dr. X can see in a day, the more revenue he’ll generate. This may help consumers understand why their doctor visits can sometimes feel rushed.  

ACOs, by comparison, are more transparent and seamless to patients. For instance, you may see your family practice (FP) doctor who needs to refer you to cardiologist 1 (C1), both of whom are in an ACO. They coordinate your care and your cardiology follow-up appointments. You might see your family doctor for some minor chest pain and/or an annual physical. Family Practice 1 (FP1) might see something on a diagnostic study that bothers him (e.g., irregular heart rhythm) and he might refer you to C1. C1 sees some bizarre anomalies and decides you need to go into Hospital 1 (H1) for further, more detailed testing. FP1, C1, and H1 might all be part of an ACO. Let’s break it down this way:

Figure 2

Better Care Delivery and Reduced Costs F2

In Figure 2, you see that the total cost of care for your services is $80. Each clinician in the ACO might generate more revenue than that which creates profitability for the delivery of care and if you receive a “good quality” outcome, the ACO may reap savings. In other words, in this case, for the management of your healthcare issue, the “cost” to the ACO is $80.

One thing to consider, and a minor hobgoblin with the ACO (or any managed care model), is that patients are not required to go to doctors or hospitals where they are referred. Clinicians in the ACO may try to keep care among the practitioners who participate in the ACO, but that isn’t always the case. For instance, if C1 decides to send you to H1, but you’ve heard bad things about H1, you can opt for Hospital 3 (H3) with no problem. (The term used for patients who slip out of ACOs to which they’re assigned is “leakage.”) However, H3 might be outside the “preferred providers” of the ACO, which creates some havoc for an ACO trying to manage its costs and care delivery.

Figure 3

Better Care Delivery and Reduced Costs F3

In Figure 3, you see the difference in the cost to deliver care by you choosing to go to H3 for your hospital care. Comparing H1 (in Figure 2) to H3, you see that care at H3, in this case, is 50% more expensive. Because you, as a patient, are “assigned” to an ACO, by your opting for H3, the extra cost is generally passed on to the ACO, negatively impacting the organization’s finances, possibly hindering their defined care protocols. However, H1 can better manage the delivery of care because it’s already in the ACO and understands the treatment regimen required for your “issue.” While you may have heard “bad things” about H1, this does not necessarily mean its clinical care is bad. Last, you may pay more at H3 than you would at H1 depending on the agreement your insurance company has with each hospital.  

Generally, when an ACO succeeds in both delivering high-quality care and spending healthcare dollars wisely, it will share in the savings it achieves for the Medicare program. The ACO may find it difficult to ensure the quality of care when a patient goes outside, or “leaks,” to another clinician for his or her care.  

ACOs come in different shapes and sizes. Some are even specialized. The ACO is generally transparent to the patient. Remember, the new care delivery paradigms include you being shepherded in a care continuum to better manage your care, ensuring quality and reduced costs. ACOs and other clinically integrated, “value-based” models are growing throughout the U.S. and will likely play important roles in healthcare delivery in the years to come.

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